Protective Life Insurance 10-Q 2005 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
September 30, 2005
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM__ TO __
Commission File Number 001-31901
Protective Life Insurance Company
(Exact name of registrant as specified in its charter)
Tennessee (State of Incorporation)	63-0169720 (IRS Employer Identification No.)
2801 Highway 280 South Birmingham, Alabama 35223 (Address of principal executive offices and zip code)
(205) 268-1000 (Registrant's telephone number, including area code)
____________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
Number of shares of Common Stock, $1.00 par value, outstanding as of November14, 2005: 5,000,000 shares.

PROTECTIVE LIFE INSURANCE COMPANY

Quarterly Report on Form 10-Q

For Quarter Ended September 30, 2005

INDEX

Part I. Financial Information:

Item 1.Financial Statements (unaudited):

Report of Independent Registered Public Accounting Firm

Consolidated Condensed Statements of Income for the

Three and Nine Months ended September 30, 2005 and 2004

Consolidated Condensed Balance Sheets as of September 30, 2005

and December 31, 2004

Consolidated Condensed Statements of Cash Flows for the

Nine Months ended September 30, 2005 and 2004

Notes to Consolidated Condensed Financial Statements

Item 2.Management’s Discussion and Analysis of Financial Condition

 and Results of Operations

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Item 4.Controls and Procedures

Part II. Other Information:

Item 6.Exhibits

Signature

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Directors and Share Owner

Protective Life Insurance Company

We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and its subsidiaries as of September 30, 2005, and the related consolidated condensed statements of income for each of the three-month and nine-month periods ended September 30, 2005 and 2004, and the consolidated condensed statements of cash flows for the nine-month periods ended September 30, 2005 and 2004. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of income, share-owner’s equity and cash flows for the year then ended (not presented herein), and in our report dated March 30, 2005, we expressed an unqualified opinion thereon. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2004 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Birmingham, Alabama

November 14, 2005

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands)

(Unaudited)

 0;                        Three Months Ended		Nine Months Ended
 0;                            September 30		September 30
2005	2004		2005	2004

REVENUES
Premiums and policy fees	$	458,031		$	456,973		$	1,400,239		$	1,347,532
Reinsurance ceded		(251,423	)		(273,074	)		(835,246	)		(798,664	)
Net of reinsurance ceded		206,608			183,899			564,993			548,868
Net investment income		293,524			259,945			838,381			767,709
Realized investment gains (losses): Derivative financial instruments		12,633			(4,218	)		(27,891	)		6,814
All other investments		(3,634	)		9,647			35,351			26,351
Other income		18,462			14,766			51,471			41,087
Total revenues		527,593			464,039			1,462,305			1,390,829
BENEFITS AND EXPENSES Benefits and settlement expenses, net of reinsurance ceded: (three months: 2005 - $216,695; 2004 - $304,134 nine months: 2005 - $754,352; 2004 - $791,122)		333,364			280,302			925,435			844,278
Amortization of deferred policy acquisition costs		57,952			52,375			184,070			157,222
Other operating expenses, net of reinsurance ceded: (three months: 2005 - $26,758; 2004 - $40,660 nine months: 2005 - $117,712; 2004 - $121,774)		37,135			40,739			98,172			100,196
Total benefits and expenses		428,451			373,416			1,207,677			1,101,696
INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		99,142			90,623			254,628			289,133
Income tax expense		33,465			34,979			86,548			101,023
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		65,677			55,644			168,080			188,110
Cumulative effect of change in accounting principle, net of income tax		0			0			0			(15,801	)
NET INCOME	$	65,677		$	55,644		$	168,080		$	172,309

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 0;                                                                                                 September 30	December 31
2005		2004

ASSETS Investments: Fixed maturities, at market (amortized cost: 2005 - $14,950,745; 2004 - $13,289,967)	$	15,396,304		$	13,987,174
Equity securities, at market (cost: 2005 - $79,474; 2004 - $26,158)		86,163			29,050
Mortgage loans on real estate		3,101,823			3,005,418
Investment in real estate, net		68,556			81,397
Policy loans		463,514			482,780
Other long-term investments		283,539			256,635
Short-term investments		595,000			1,046,043
Total investments		19,994,899			18,888,497
Cash		30,128			110,456
Accrued investment income		196,087			192,482
Accounts and premiums receivable, net		46,588			35,547
Reinsurance receivables		2,805,463			2,705,095
Deferred policy acquisition costs		2,087,469			1,825,104
Goodwill		38,986			36,182
Property and equipment, net		41,805			43,549
Other assets		85,524			208,345
Income taxes receivable		52,353			0
Assets related to separate accounts Variable annuity		2,352,287			2,308,858
Variable universal life		240,944			217,095
	$	27,972,533		$	26,571,210
LIABILITIES Policy liabilities and accruals	$	11,439,968		$	10,638,734
Stable value product account balances		5,900,740			5,562,997
Annuity account balances		3,430,038			3,463,477
Other policyholders' funds		148,800			151,213
Securities sold under repurchase agreements		142,850			0
Other liabilities		965,540			980,241
Accrued income taxes		0			15,738
Deferred income taxes		264,115			285,001
Non-recourse funding obligations		100,000			0
Notes payable		2,176			2,202
Liabilities related to variable interest entities		43,043			60,590
Liabilities related to separate accounts Variable annuity		2,352,287			2,308,858
Variable universal life		240,944			217,095
		25,030,501			23,686,146
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE 2 SHARE-OWNER'S EQUITY Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation preference $2,000		2			2
Common Stock, $1.00 par value, shares authorized and issued: 5,000,000		5,000			5,000
Additional paid-in capital		932,805			932,805
Note receivable from PLC Employee Stock Ownership Plan		(2,507	)		(2,983	)
Retained earnings		1,822,046			1,653,954
Accumulated other comprehensive income: Net unrealized gains on investments, net of income tax: (2005 - $93,830; 2004 - $156,308)		174,255			287,670
Accumulated gain - hedging, net of income tax: (2005 - $5,617; 2004 - $2,024)		10,431			8,616
		2,942,032			2,885,064
	$	27,972,533		$	26,571,210

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 0;                                                                 ��                                                        Nine Months Ended
 0;                                                                                                                        September 30
2005	2004

CASH FLOWS FROM OPERATING ACTIVITIES Net income	$	168,080		$	172,309
Adjustments to reconcile net income to net cash provided by operating activities: Realized investment (gains) losses		(35,351	)		(17,155	)
Amortization of deferred policy acquisition costs		184,070			157,222
Capitalization of deferred policy acquisition costs		(377,248	)		(271,352	)
Depreciation expense		11,128			12,692
Deferred income tax		39,765			21,659
Accrued income tax		(68,091	)		(40,394	)
Interest credited to universal life and investment products		532,337			480,789
Policy fees assessed on universal life and investment products		(308,330	)		(261,058	)
Change in accrued investment income and other receivables		(114,819	)		(281,665	)
Change in policy liabilities and other policyholders' funds of traditional life and health products		589,235			572,829
Change in other liabilities		17,624			(72,146	)
Other, net		107,479			(26,325	)
Net cash provided by operating activities		745,879			447,405
CASH FLOWS FROM INVESTING ACTIVITIES Investments available for sale, net of short-term investments: Maturities and principal reductions of investments		1,314,486			1,493,142
Sale of investments		3,468,686			2,905,106
Cost of investments acquired		(6,546,103	)		(4,691,103	)
Mortgage loans:
New borrowings		(447,717	)		(498,178	)
Repayments		346,056			326,526
Change in investment in real estate, net		4,032			123
Change in policy loans, net		19,266			17,466
Change in other long-term investments, net		(106,602	)		3,098
Change in short-term investments, net		434,684			(282,214	)
Purchase of property and equipment		(7,429	)		(13,093	)
Net cash used in investing activities		(1,520,641	)		(739,127	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on line of credit arrangement and debt		(26	)		(1,699	)
Net proceeds from securities sold under repurchase agreements		142,850			0
Issuance of non-recourse funding obligations		100,000			0
Investment product deposits and change in universal life deposits		2,318,325			2,109,203
Investment product withdrawals		(1,952,911	)		(1,845,728	)
Other financing activities, net		86,196			0
Net cash provided by financing activities		694,434			261,776
CHANGE IN CASH		(80,328	)		(29,946	)
CASH AT BEGINNING OF PERIOD		110,456			111,059
CASH AT END OF PERIOD	$	30,128		$	81,113

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(Dollar amounts in tables are in thousands)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries (the “Company") have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three and nine-month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

The Company is a wholly-owned subsidiary of Protective Life Corporation ("PLC").

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income or share-owner’s equity.

With respect to the unaudited consolidated condensed financial information of the Company for the three and nine-month periods ended September 30, 2005 and 2004, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 14, 2005, appearing herein, stated that they did not audit and they do not express an opinion on that unaudited consolidated condensed financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated condensed financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers into which this Form 10-Q may be incorporated by reference within the meaning of Sections 7 and 11 of the Act.

NOTE 2 - COMMITMENTS AND CONTINGENT LIABILITIES

Under insurance guaranty fund laws, in most states insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.

A number of civil jury verdicts have been returned against insurers, broker-dealers, and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business is involved in such litigation and arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, the Company does not believe that any such outcome will have a material impact on the financial condition or results of operations of the Company.

NOTE 3 - OPERATING SEGMENTS

The Company operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows:

·   The Life Marketing segment markets level premium term and term-like insurance, universal life, variable universal life and “bank owned life insurance” (“BOLI”) products on a national basis primarily through networks of independent insurance agents and brokers, stockbrokers, and in the BOLI market.

·   The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals.

·   The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and independent insurance agents and brokers.

·   The Stable Value Products segment sells guaranteed funding agreements (“GFAs”) to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts “GICs” to 401(k) and other qualified retirement savings plans.

·   The Asset Protection segment primarily markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and watercraft. In addition, the segment markets an inventory protection product and a guaranteed asset protection (GAP) product.

The Company has an additional segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital). This segment also includes earnings from several small non-strategic lines of business (primarily cancer insurance, residual value insurance, surety insurance, and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

The Company uses the same accounting policies and procedures to measure segment operating income and assets as it uses to measure its consolidated net income and assets. Segment operating income is generally income before income tax, adjusted to exclude net realized investment gains and losses (net of the related amortization of deferred policy acquisition costs and participating income from real estate ventures) and the cumulative effect of change in accounting principle. Periodic settlements of interest rate swaps associated with certain investments are included in realized gains and losses but are considered part of operating income because the swaps are used to mitigate risk in items affecting segment operating income. Segment operating income represents the basis on which the performance of the Company’s business is assessed by management. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities, while deferred policy acquisition costs and goodwill are shown in the segments to which they are attributable.

There are no significant intersegment transactions.

The following tables summarize financial information for the Company’s segments. Asset adjustments represent the inclusion of assets related to discontinued operations.

	Three Months Ended September 30				Nine Months Ended September 30
	2005		2004		2005		2004
Revenues
Life Marketing	$	159,296	$	122,639	$	411,512	$	352,486
Acquisitions		102,214		108,760		310,159		331,491
Annuities		64,068		65,041		223,201		192,487
Stable Value Products		80,418		73,464		233,078		210,064
Asset Protection		70,094		68,849		206,198		209,953
Corporate and Other		51,503		25,286		78,157		94,348
Total revenues	$	527,593	$	464,039	$	1,462,305	$	1,390,829

	Three Months Ended September 30						Nine Months Ended September 30
	2005			2004			2005			2004
Segment Operating Income
Life Marketing	$	37,072		$	37,933		$	112,699		$	121,898
Acquisitions		19,531			21,275			62,128			65,875
Annuities		4,660			3,753			16,364			10,848
Stable Value Products		13,743			13,313			41,626			38,938
Asset Protection		5,539			5,073			18,618			13,527
Corporate and Other		10,439			7,961			27,796			16,888
Total segment operating income		90,984			89,308			279,231			267,974
Realized investment gains (losses) - investments(1)		(3,796	)		6,978			5,614			19,471
Realized investment gains (losses) - derivatives(2)		11,954			(5,663	)		(30,217	)		1,688
Income tax expense		(33,465	)		(34,979	)		(86,548	)		(101,023	)
Net income before cumulative effect of change in accounting principle		65,677			55,644			168,080			188,110
Cumulative effect of change in accounting principle		0			0			0			(15,801	)
Net income	$	65,677		$	55,644		$	168,080		$	172,309
(1)Realized investment gains (losses) - investments	$	(3,634	)	$	9,647		$	35,351		$	26,351
Less participating income from real estate ventures		0			0			(5,883	)		0
Less related amortization of DAC		(162	)		(2,669	)		(23,854	)		(6,880	)
	$	(3,796	)	$	6,978		$	5,614		$	19,471
(2)Realized investment gains (losses) - derivatives	$	12,633		$	(4,218	)	$	27,891	)	$	6,814
Less settlements on certain interest rate swaps		(679	)		(1,445	)		(2,326	)		(5,126	)
	$	11,954		$	(5,663	)	$	(30,217	)	$	1,688

                                                                       Operating Segment Assets

                                                                     September 30, 2005

	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	6,794,911	$	3,952,568	$	6,047,151	$	5,791,190
Deferred policy acquisition costs		1,466,573		327,427		103,094		19,578
Goodwill		0		0		0		0
Total assets	$	8,261,484	$	4,279,995	$	6,150,245	$	5,810,768

	Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets	$	703,633	$	2,517,416	$	39,209	$	25,846,078
Deferred policy acquisition costs		162,815		7,982		0		2,087,469
Goodwill		38,986		0		0		38,986
Total assets	$	905,434	$	2,525,398	$	39,209	$	27,972,533

                                                                     Operating Segment Assets

                                                                    December 31, 2004

	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	5,961,091	$	4,063,711	$	5,977,030	$	5,377,917
Deferred policy acquisition costs		1,262,637		337,372		81,250		18,301
Goodwill		0		0		0		0
Total assets	$	7,223,728	$	4,401,083	$	6,058,280	$	5,396,218

	Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets	$	817,114	$	2,469,953	$	43,108	$	24,709,924
Deferred policy acquisition costs		116,636		8,908		0		1,825,104
Goodwill		36,182		0		0		36,182
Total assets	$	969,932	$	2,478,861	$	43,108	$	26,571,210

NOTE 4 - STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with GAAP differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. In accordance with statutory reporting practices, at September 30, 2005, and for the nine months then ended, the Company and its insurance subsidiaries had combined capital and surplus of $1.4 billion and net income of $6.6 million. At September 30, 2005, the combined asset valuation reserve held by the Company and its insurance subsidiaries was $176.2 million.

NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“FAS 123(R)”). FAS 123(R) is a revision of FAS 123, “Accounting for Stock-Based Compensation,” which was originally issued by the FASB in 1995. FAS 123(R) will become effective for the Company January 1, 2006. As originally issued, FAS 123 provided companies with the option to either record expense for share-based payments under a fair value model, or to simply disclose the impact of the expense. FAS 123(R) requires companies to measure the cost of share-based payments to employees using a fair value model, and to recognize that cost over the relevant service period. In addition, FAS 123(R) requires that an estimate of future award forfeitures be made at the grant date, while FAS 123 permitted recognition of forfeitures on an as incurred basis. When FAS 123 was originally issued, the Company elected to recognize the cost of its share-based compensation plans in its financial statements. The Company is currently evaluating the provisions of FAS 123(R), but does not anticipate that adoption of this standard will have a material impact on its financial position or results of operations.

In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (“FAS 154”). FAS 154 replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” FAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. FAS 154 also provides that a correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors beginning January 1, 2006.

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AcSEC”) issued SOP 05-1,“Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts.” This SOP provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FAS 97. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The Company is currently evaluating the impact of SOP 05-1, which is effective for internal replacements occurring in fiscal years beginning after December 15, 2006.

NOTE 6 - COMPREHENSIVE INCOME

The following table sets forth the Company's comprehensive income (loss) for the periods presented below:

	Three Months Ended September 30						Nine Months Ended September 30
	2005			2004			2005			2004
Net income	$	65,677		$	55,644		$	168,080		$	172,309
Change in net unrealized gains/losses on investments, net of income tax: (three months: 2005 - $(87,513); 2004 - $98,174 nine months: 2005 - $(48,697); 2004 - $(12,111))		(162,524	)		182,323			(90,437	)		(22,492	)
Change in accumulated gain-hedging, net of income tax: (three months: 2005 - $2,837; 2004 - $(1,623) nine months: 2005 - $977: 2004 - $582)		5,269			(3,014	)		1,815			1,080
Reclassification adjustment for amounts included in net income, net of income tax: (three months: 2005 - $1,272; 2004 - $(3,376) nine months: 2005 - $(12,373); 2004 - $(9,223))		2,362			(6,270	)		(22,978	)		(17,128	)
Comprehensive income (loss)	$	(89,216	)	$	228,683		$	56,480		$	133,769

NOTE 7 - RETIREMENT BENEFIT PLANS

The net periodic benefit cost recognized for PLC’s defined benefit pension plan and unfunded excess benefits plan are as follows:

	Three Months Ended September 30						Nine Months Ended September 30
	2005			2004			2005			2004
Service cost	$	1,557		$	1,368		$	5,352		$	4,581
Interest cost		1,700			1,566			5,844			5,243
Expected return on plan assets		(1,986	)		(1,578	)		(6,828	)		(5,285	)
Amortization of prior service cost		54			53			187			177
Amortization of net loss		714			512			2,453			1,716
Net periodic benefit cost	$	2,039		$	1,921		$	7,008		$	6,432

The Company previously disclosed in its financial statements for the year ended December 31, 2004, that it expected to contribute $6.6 million to its pension plan in 2005. The Company now estimates that it will contribute $9.9 million to its pension plan in 2005. As of September 30, 2005, $4.0 million had been contributed, and as of November 14, 2005, $6.0 million had been contributed to the pension plan. PLC’s defined benefit pension plan covers substantially all of its employees, including the Company employees. The plan is not separable by affiliates participating in the plan.

In addition to pension benefits, PLC provides limited healthcare benefits and life insurance benefits to eligible retirees. The cost of these plans for the nine months ended September 30, 2005 and 2004 was not material.

NOTE 8 - NON-RECOURSE FUNDING OBLIGATIONS

On August 26, 2005 Golden Gate Captive Insurance Company (“Golden Gate”), a special purpose financial captive insurance company wholly owned by the Company,issued $100 million of non-recourse funding obligations, which bear a floating rate of interest and mature in 2037. These non-recourse funding obligations were issued under a surplus notes facility established with certain purchasers through which Golden Gate may issue up to an aggregate of $400 million of non-recourse funding obligations. The non-recourse funding obligations are direct financial obligations of Golden Gate and are not guaranteed by the Company or its parent company, PLC.

The non-recourse obligations are represented by surplus notes that were issued to fund statutory reserves required by the Valuation of Life Insurance Policies Regulation (Regulation XXX). Under the terms of the notes, the holders of the notes cannot require repayment from the Company or any of the Company’s subsidiaries, other than Golden Gate, the direct issuer of the notes, although the Company has agreed to indemnify Golden Gate for certain costs and obligations (which obligations do not include payment of principal and interest on the notes). In addition, PLC has entered into certain support agreements with Golden Gate obligating PLC to make capital contributions to Golden Gate or provide support related to certain of Golden Gate’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate.

Interest on the principal amount of the notes accrues at a floating rate of interest and is payable on the 26^th of each month. Any payment of principal, including by redemption, or interest on the notes may only be made with the prior approval of the Director of Insurance of the State of South Carolina (Golden Gate’s state of domicile) in accordance with the terms of its licensing orders and in accordance with applicable law. If an event of default occurs, the holders of the notes have the right to declare the entire principal and any accrued interest due and payable immediately, subject to regulatory approval. Golden Gate reserves the right to repay the notes that it has issued at any time, subject to prior regulatory approval.

As of September 30, 2005, $100 million of non-recourse funding obligations have been issued and are outstanding. The weighted average interest rate as of September 30, 2005 is 5.08%.

NOTE 9 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

In January 2004, the Company adopted Statement of Position 03-1 “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (“SOP 03-1”). SOP 03-1 provides guidance related to the establishment of reserves for benefit guarantees provided under certain long-duration contracts, as well as the accounting for mortality benefits provided in certain universal life products. In addition, it addresses the capitalization and amortization of sales inducements to contract holders. The SOP was effective January 1, 2004 and was adopted through an adjustment for the cumulative effect of change in accounting principle originally amounting to $10.1 million (net of $5.5 million income tax). During the third quarter of 2004, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants “AcSEC” issued a Technical Practice Aid (“TPA”), which provided additional interpretive guidance on applying certain provisions of the SOP. As a result of this additional guidance, in the fourth quarter of 2004, the Company restated its cumulative effect charge as of January 1, 2004 to record an additional expense of $5.7 million (net of $3.1 million income tax) for a total cumulative charge to net income of $15.8 million, net of income tax of $8.5 million.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts in tables are in thousands)

INTRODUCTION

This Management’s Discussion and Analysis should be read in its entirety, since it contains detailed information that is important to understanding the Company’s results and financial condition. The Overview below is qualified in its entirety by the full Management’s Discussion and Analysis.

Protective Life Insurance Company (the “Company") is a wholly-owned subsidiary of Protective Life Corporation ("PLC"), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol "PL". Founded in 1907, the Company provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, the “Company" refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.

The Company operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. The Company's operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, and Asset Protection. The Company also has an additional segment referred to as Corporate and Other which consists of net investment income on unallocated capital, earnings from various investment-related transactions, and the operations of several non-strategic lines of business. The Company periodically evaluates its operating segments in light of the segment reporting requirements prescribed by FAS 131, “Disclosures about Segments of an Enterprise and Related Information,” and makes adjustments to its segment reporting as needed.

FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE

This report reviews the Company’s financial condition and results of operations including its liquidity and capital resources. Historical information is presented and discussed. Where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts and may contain words like "believe,"  "expect,”“estimate,”“project,”“budget,”“forecast,”“anticipate,”“plan,”“will,”“shall,”“may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the results contained in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

For a more complete understanding of the Company’s business and its current period results, please read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the Company’s latest Annual Report on Form 10-K and other filings with the SEC.

KNOWN TRENDS AND UNCERTAINTIES

The factors which could affect the Company's future results include, but are not limited to, general economic conditions and the following known trends and uncertainties: we are exposed to the risks of natural disasters, pandemics, malicious and terrorist acts that could adversely affect our operations; we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry; a ratings downgrade could adversely affect our ability to compete; our policy claims fluctuate from period to period, and actual results could differ from our expectations; our results may be negatively affected should actual experience differ from management's assumptions and estimates; the use of reinsurance introduces variability in our statements of income; we could be forced to sell investments at a loss to cover policyholder withdrawals; interest rate fluctuations could negatively affect our spread income or otherwise impact our business; equity market volatility could negatively impact our business; a deficiency in our systems could result in over or underpayments of amounts owed to or by the Company and/or errors in our critical assumptions or reported financial results; insurance companies are highly regulated and subject to numerous legal restrictions and regulations; the Company is exposed to potential risks from recent legislation requiring companies to evaluate their internal control over financial reporting; changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products; financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments; the financial services industry is sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny; our ability to maintain low unit costs is dependent upon the level of new sales and persistency of existing business; our investments are subject to market and credit risks; we may not realize our anticipated financial results from our acquisitions strategy; we are dependent on the performance of others; our reinsurers could fail to meet assumed obligations, increase rates or be subject to adverse developments that could affect us; computer viruses or network security breaches could affect our data processing systems or those of our business partners; our ability to grow depends in large part upon the continued availability of capital; and new accounting rules or changes to existing accounting rules could negatively impact us. Please refer to Exhibit 99, incorporated by reference herein, about these factors that could affect future results.

The Company’s results may fluctuate from period to period due to fluctuations in mortality, persistency, claims, expenses, interest rates, and other factors. Therefore, it is management's opinion that quarterly operating results for an insurance company are not necessarily indicative of results to be achieved in future periods, and that a review of operating results over a longer period is necessary to assess an insurance company's performance.

OVERVIEW —RESULTS OF OPERATIONS

In the following discussion, segment operating income is defined as income before income tax, adjusted to exclude net realized investment gains and losses (net of the related amortization of deferred policy acquisition costs (“DAC”) and participating income from real estate ventures) and the cumulative effect of change in accounting principle. Periodic settlements of interest rate swaps associated with certain investments are included in realized gains and losses but are considered part of segment operating income because the swaps are used to mitigate risk in items affecting segment operating income. Management believes that segment operating income provides relevant and useful information to investors, as it represents the basis on which the performance of the Company’s business is internally assessed. Although the items excluded from segment operating income may be significant components in understanding and assessing the Company’s overall financial performance, management believes that segment operating income enhances an investor’s understanding of the Company’s results of operations. Note that the Company’s segment operating income measures may not be comparable to similarly titled measures reported by other companies.

The following table sets forth a summary of results and reconciles segment operating income to consolidated net income:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Segment Operating Income
Life Marketing	$	37,072		$	37,933			(2.3	)%	$	112,699		$	121,898			(7.5	)%
Acquisitions		19,531			21,275			(8.2	)		62,128			65,875			(5.7	)
Annuities		4,660			3,753			24.2			16,364			10,848			50.8
Stable Value Products		13,743			13,313			3.2			41,626			38,938			6.9
Asset Protection		5,539			5,073			9.2			18,618			13,527			37.6
Corporate & Other		10,439			7,961			31.1			27,796			16,888			64.6
Total segment operating income		90,984			89,308						279,231			267,974
Realized investment gains (losses) - investments(1)		(3,796	)		6,978						5,614			19,471
Realized investment gains (losses) - derivatives(2)		11,954			(5,663	)					(30,217	)		1,688
Income tax expense		(33,465	)		(34,979	)					(86,548	)		(101,023	)
Net income before cumulative effect of change in accounting principle		65,677			55,644			18.0			168,080			188,110			(10.6	)
Cumulative effect of change in accounting principle, net of income tax		0			0						0			(15,801	)
Net income	$	65,677		$	55,644			18.0		$	168,080		$	172,309			(2.5	)
(1)Realized investment gains (losses) - investments	$	(3,634	)	$	9,647					$	35,351		$	26,351
Less participating income from real estate ventures		0			0						(5,883	)		0
Less related amortization of DAC		(162	)		(2,669	)					(23,854	)		(6,880	)
	$	(3,796	)	$	6,978					$	5,614		$	19,471
(2)Realized investment gains (losses) - derivatives	$	12,633		$	(4,218	)				$	(27,891	)	$	6,814
Less settlements on certain interest rate swaps		(679	)		(1,445	)					(2,326	)		(5,126	)
	$	11,954		$	(5,663	)				$	(30,217	)	$	1,688

Net income for the first nine months of 2005 reflects moderate growth in segment operating income, offset by net realized investment losses. Net realized investment losses were $24.6 million for the first nine months of 2005, compared to net realized investment gains of $21.2 million for the same period of 2004, a change of $45.8 million. Partially offsetting the change in realized investment gains and losses is the cumulative effect charge of $15.8 million recorded in the first nine months of 2004, with no such adjustment in 2005. (See Note 9 to the Consolidated Condensed Financial Statements for additional information related to the cumulative effect of change in accounting principle.) Life Marketing’s operating income decreased slightly from the third quarter and first nine months of 2004, reflecting higher overall benefits and expenses offset by continued growth in life insurance in-force through new sales. The quarterly and year-to-date declines in the Acquisitions segment’s operating income are due to the normal runoff of the segment’s previously acquired blocks of business. Improvement in the equity markets and higher sales of variable annuities contributed to the quarterly and year-to-date increases of 24.2% and 50.8%, respectively, in the Annuities segment’s earnings. The Annuities segment’s year-to-date earnings were also favorably impacted by a $5.0 million reduction of DAC amortization in the second quarter of 2005 due to favorable unlocking. Increases in average account values, partially offset by spread compression, resulted in higher year-to-date operating income in the Stable Value Products segment. The Asset Protection segment’s operating income increased 9.2% and 37.6% over the third quarter and first nine months of 2004, respectively, primarily due to improvements in the segment’s service contract and other product lines.

RESULTS BY BUSINESS SEGMENT

In the following segment discussions, various statistics and other key data the Company uses to evaluate its segments are presented. Sales statistics are used by the Company to measure the relative progress in its marketing efforts, but may or may not have an immediate impact on reported segment operating income. Sales data for traditional life insurance are based on annualized premiums, while universal life sales are based on annualized planned premiums plus 6% of excess over target premiums. Sales of annuities are measured based on the amount of deposits received. Stable value contract sales are measured at the time that the funding commitment is made, based on the amount of deposit to be received. Sales within the Asset Protection segment are generally based on the amount of single premium and fees received.

Sales and life insurance in-force amounts are derived from the Company’s various sales tracking and administrative systems, and are not derived from the Company’s financial reporting systems or financial statements. Mortality variances are derived from actual claims compared to expected claims. These variances do not represent the net impact to earnings due to the interplay of reserves and DAC amortization.

Life Marketing

The Life Marketing segment markets level premium term and term-like insurance, universal life (“UL”), variable universal life and "bank owned life insurance" (“BOLI”) products on a national basis primarily through networks of independent insurance agents and brokers, stockbrokers, and in the BOLI market. Segment results were as follows:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	297,098		$	253,951			17.0	%	$	861,200		$	740,868			16.2	%
Reinsurance ceded		(204,572	)		(191,228	)		7.0			(640,286	)		(565,086	)		13.3
Net premiums and policy fees		92,526			62,723			47.5			220,914			175,782			25.7
Net investment income		66,574			59,710			11.5			189,913			176,117			7.8
Other income		196			206			(4.9	)		685			587			16.7
Total operating revenues		159,296			122,639			29.9			411,512			352,486			16.7
BENEFITS AND EXPENSES
Benefits and settlement expenses		112,119			78,361			43.1			274,896			217,079			26.6
Amortization of deferred policy acquisition costs		23,831			14,823			60.8			63,071			46,830			34.7
Other operating expenses		(13,726	)		(8,478	)		61.9			(39,154	)		(33,321	)		17.5
Total benefits and expenses		122,224			84,706			44.3			298,813			230,588			29.6
OPERATING INCOME		37,072			37,933			(2.3	)		112,699			121,898			(7.5	)
INCOME BEFORE INCOME TAX	$	37,072		$	37,933			(2.3	)	$	112,699		$	121,898			(7.5	)

The following table summarizes key data for the Life Marketing segment:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Sales By Product
Traditional	$	27,975		$	41,046			(31.8	)%	$	89,344		$	130,089			(31.3	)%
Universal life		50,308			16,364			207.4			124,694			53,327			133.8
Variable universal life		1,698			1,491			13.9			4,033			4,090			(1.4	)
	$	79,981		$	58,901			35.8		$	218,071		$	187,506			16.3
Sales By Distribution Channel
Brokerage general agents	$	36,072		$	37,843			(4.7	)	$	101,739		$	120,170			(15.3	)
Independent agents		21,788			12,615			72.7			57,912			37,925			52.7
Stockbrokers/banks		19,741			7,016			181.4			50,304			19,857			153.3
BOLI/other		2,380			1,427			66.8			8,116			9,554			(15.1	)
	$	79,981		$	58,901			35.8		$	218,071		$	187,506			16.3
Average Life Insurance In-Force(1)
Traditional	$	344,313,461		$	303,556,718			13.4		$	336,609,496		$	289,615,677			16.2
Universal life		46,057,904			40,756,564			13.0			44,581,587			39,910,123			11.7
	$	390,371,365		$	344,313,282			13.4		$	381,191,083		$	329,525,800			15.7
Average Account Values
Universal life	$	4,235,895		$	3,666,987			15.5		$	4,056,168		$	3,565,474			13.8
Variable universal life		233,236			190,721			22.3			225,183			183,879			22.5
	$	4,469,131		$	3,857,708			15.8		$	4,281,351		$	3,749,353			14.2
Interest Spread - Universal Life(2)
Net investment income yield		6.08	%		6.39	%					6.07	%		6.44	%
Interest credited to policyholders		4.73			4.89						4.74			4.92
Interest spread		1.35	%		1.50	%					1.33	%		1.52	%
Mortality Experience (3)	$	503		$	(669	)				$	5,574		$	1,322

⁽¹⁾Amounts are not adjusted for reinsurance ceded.

⁽²⁾Interest spread on average general account values.

⁽³⁾Represents a favorable (unfavorable) variance as compared to pricing assumptions.

              Operating income decreased 2.3% and 7.5%, respectively, from the third quarter and first nine months of 2004. This decrease is the result of higher overall benefits and expenses, partially offset by increases in total revenues of 29.9% and 16.7% for the quarter and year-to-date, respectively, primarily due to moderate increases in sales and growth of life insurance in-force and average account values.

Net premiums and policy fees grew by 47.5% in the current quarter and 25.7% year-to-date due in part to the growth in life insurance in-force achieved over the last several quarters. Net premiums and policy fees are also higher than the prior year due to an increase in retention levels on certain newly written products. Beginning in the second quarter of 2005, the Company increased its retained amounts on certain of its newly written traditional life products from $500,000 to $1,000,000. In addition to increasing net premiums, this change will result in higher benefits and settlement expenses, and will cause greater variability in financial results due to fluctuations in mortality results.

Net investment income increased 11.5% for the quarter and 7.8% for the first nine months of 2005, reflecting the growth of the segment’s assets, offset by lower investment yields. Interest spreads on UL products for the first nine months have declined 19 basis points from the prior year.

Benefits and settlement expenses were 43.1% and 26.6% higher than the third quarter and first nine months of 2004, respectively, due to growth in life insurance in-force, the increase in retention levels on certain newly written traditional life products, and higher credited interest on UL products resulting from increases in account values, partially offset by favorable fluctuations in mortality experience. Mortality for the current quarter was $1.2 million more favorable than the prior year, while year-to-date mortality was $4.3 million more favorable than the same period of 2004. Amortization of DAC was 60.8% and 34.7% higher for the quarter and first nine months, respectively, than 2004 primarily due to growth of life insurance in-force, unfavorable effects of unlocking on UL amortization in 2005 compared to the prior year, increased amortization resulting from the capitalization of premium taxes on excess premiums in the UL line, and reductions to amortization in 2004 resulting from the SOP implementation.

Other operating expenses for the segment were as follows:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
First year commissions	$	87,001		$	67,776			28.4	%	$	247,930		$	209,552			18.3	%
Renewal commissions		8,039			8,223			(2.2	)		24,020			23,400			2.7
First year ceding allowances		(21,238	)		(41,541	)		(48.9	)		(94,821	)		(125,165	)		(24.2	)
Renewal ceding allowances		(43,759	)		(37,899	)		15.5			(129,549	)		(108,185	)		19.7
General & administrative		40,775			43,893			(7.1	)		131,992			137,465			(4.0	)
Taxes, licenses and fees		8,977			5,952			50.8			23,344			16,386			42.5
Other operating expenses incurred		79,795			46,404			72.0			202,916			153,453			32.2
Less commissions, allowances & expenses capitalized		(93,521	)		(54,882	)		70.4			(242,070	)		(186,774	)		29.6
Other operating expenses	$	(13,726	)	$	(8,478	)		61.9		$	(39,154	)	$	(33,321	)		17.5

Currently, the segment reinsures significant amounts of its life insurance in-force. Pursuant to the underlying reinsurance contracts, reinsurers pay allowances to the segment as a percentage of both first year and renewal premiums. A portion of these allowances is deferred as part of DAC while the remainder is recognized immediately as a reduction of other operating expenses. While the recognition of reinsurance allowances is consistent with GAAP, non-deferred allowances often exceed the segment’s non-deferred direct costs, causing net other operating expenses to be negative. Consideration of all components of the segment’s income statement, including amortization of DAC, is required to assess the impact of reinsurance on segment operating income.

Other operating expenses for the segment have decreased from the prior year as a result of lower expenses incurred per policy issued, combined with higher DAC capitalization driven by the significant growth in UL sales. Amounts capitalized as DAC generally include first year commissions and allowances, and other deferrable acquisition expenses. The change in these amounts generally reflects the trend in sales for the quarter.

Sales for the segment increased 35.8% and 16.3% versus the third quarter and first nine months of 2004 primarily due to the significant increase in UL sales. The upward trend in UL sales is the result of a favorable competitive position combined with growth of our distribution footprint. The strong UL sales were partially offset by lower traditional life sales. Sales of BOLI business also declined year-to-date from 2004. BOLI sales will vary widely between periods as the segment responds to opportunities for these products only when required returns can be achieved.

Acquisitions

The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals. Segment results were as follows:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	64,265		$	66,985			(4.1	)%	$	195,869		$	206,113			(5.0	)%
Reinsurance ceded		(17,668	)		(16,562	)		6.7			(54,954	)		(51,503	)		6.7
Net premiums and policy fees		46,597			50,423			(7.6	)		140,915			154,610			(8.9	)
Net investment income		55,366			57,682			(4.0	)		168,179			175,041			(3.9	)
Other income		251			655			(61.7	)		1,065			1,840			(42.1	)
Total operating revenues		102,214			108,760			(6.0	)		310,159			331,491			(6.4	)
BENEFITS AND EXPENSES
Benefits and settlement expenses		69,312			71,571			(3.2	)		204,495			215,931			(5.3	)
Amortization of deferred policy acquisition costs		6,197			7,056			(12.2	)		20,453			22,381			(8.6	)
Other operating expenses		7,174			8,858			(19.0	)		23,083			27,304			(15.5	)
Total benefits and expenses		82,683			87,485			(5.5	)		248,031			265,616			(6.6	)
OPERATING INCOME		19,531			21,275			(8.2	)		62,128			65,875			(5.7	)
INCOME BEFORE INCOME TAX	$	19,531		$	21,275			(8.2	)	$	62,128		$	65,875			(5.7	)

The following table summarizes key data for the Acquisitions segment:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Average Life Insurance In-Force(1)
Traditional	$	10,641,093		$	11,876,806			(10.4	)%	$	10,915,764		$	12,058,599			(9.5	)%
Universal life		17,017,720			18,215,608			(6.6	)		17,325,813			18,387,091			(5.8	)
	$	27,658,813		$	30,092,414			(8.1	)	$	28,241,577		$	30,445,690			(7.2	)
Average Account Values
Universal life	$	1,703,219		$	1,725,139			(1.3	)	$	1,709,402		$	1,729,421			(1.2	)
Fixed annuity(2)		212,967			218,668			(2.6	)		214,337			219,160			(2.2	)
Variable annuity		72,826			90,121			(19.2	)		78,376			93,632			(16.3	)
	$	1,989,012		$	2,033,928			(2.2	)	$	2,002,115		$	2,042,213			(2.0	)
Interest Spread - UL & Fixed Annuities
Net investment income yield		6.96	%		7.18	%					7.03	%		7.23	%
Interest credited to policyholders		5.15			5.19						5.15			5.20
Interest spread		1.81	%		1.99	%					1.88	%		2.03	%
Mortality Experience(3)	$	772		$	1,071					$	3,937		$	3,947

⁽¹⁾Amounts are not adjusted for reinsurance ceded.

⁽²⁾Includes general account balances held within variable annuity products.

⁽³⁾Represents a favorable variance as compared to pricing assumptions.

              Net premiums and policy fees declined 7.6% and 8.9% from the third quarter and first nine months of 2004, respectively. These decreases are the result of the runoff of the acquired blocks of business. Year-to-date net premiums were additionally decreased by payment during the first quarter of 2005 of amounts due under two reinsurance treaties. While this had no net income impact, the payments decreased net premiums and policy fees by $3.9 million, benefits and settlement expenses by $3.5 million, and other operating expenses by $0.3 million.

Net investment income was also lower for the current quarter and year-to-date due to the runoff of business and lower overall earned rates. The segment continues to review credited rates on UL and annuity business to minimize the impact of lower earned rates on interest spreads. The year-to-date interest spread declined 18 basis points and 15 basis points, respectively, from the third quarter and first nine months of the prior year.

Benefits and settlement expenses for the third quarter and first nine months of 2005 are 3.2% and 5.3% lower, respectively, than the comparable periods of the prior year due to the decline in in-force business. The year-to-date decrease also includes the impact of the reinsurance payments mentioned above. Amortization of DAC decreased during the current quarter and the first nine months of 2005 due to the overall decline in business. Other operating expenses decreased 19.0% and 15.5% from the third quarter and first nine months of 2004, respectively, due to lower commissions resulting from lower net premiums, reductions in other general expenses, and the reinsurance payments discussed above.

The segment’s life insurance in-force and UL and annuity account values have declined from 2004 levels as no new acquisitions have been made since 2002. In the ordinary course of business, the segment regularly considers acquisitions of blocks of policies or smaller insurance companies. However, the level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, and market dynamics. The Company will continue to pursue suitable acquisitions as they become available.

Annuities

The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and independent agents and brokers. Segment results were as follows:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	8,057		$	7,370			9.3	%	$	23,763		$	22,592			5.2	%
Reinsurance ceded		0			0						0			0
Net premiums and policy fees		8,057			7,370			9.3			23,763			22,592			5.2
Net investment income		54,003			52,854			2.2			164,930			155,965			5.7
Other income		1,775			1,293			37.3			5,339			4,112			29.8
Total operating revenues		63,835			61,517			3.8			194,032			182,669			6.2
BENEFITS AND EXPENSES
Benefits and settlement expenses		44,596			46,526			(4.1	)		141,363			137,028			3.2
Amortization of deferred policy acquisition costs		7,501			5,790			29.6			16,900			17,755			(4.8	)
Other operating expenses		7,078			5,448			29.9			19,405			17,038			13.9
Total benefits and expenses		59,175			57,764			2.4			177,668			171,821			3.4
OPERATING INCOME		4,660			3,753			24.2			16,364			10,848			50.8
Realized gains and losses - investments		70			3,524						29,168			9,818
Realized gains and losses - derivatives		163			0						1			0
Related amortization of DAC		(162	)		(2,669	)					(23,854	)		(6,880	)
INCOME BEFORE INCOME TAX	$	4,731		$	4,608			2.7		$	21,679		$	13,786			57.3

The following table summarizes key data for the Annuities segment:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Sales
Fixed annuity	$	69,826		$	106,391			(34.4	)%	$	190,235		$	230,790			(17.6	)%
Variable annuity		74,659			74,231			0.6			241,991			199,272			21.4
	$	144,485		$	180,622			(20.0	)	$	432,226		$	430,062			0.5
Average Account Values
Fixed annuity(1)	$	3,452,363		$	3,227,028			7.0		$	3,451,683		$	3,189,657			8.2
Variable annuity		2,261,110			1,992,107			13.5			2,210,062			1,993,651			10.9
	$	5,713,473		$	5,219,135			9.5		$	5,661,745		$	5,183,308			9.2
Interest Spread - Fixed Annuities(2)
Net investment income yield		6.32	%		6.63	%					6.33	%		6.49	%
Interest credited to policyholders		5.55			5.74						5.50			5.66
Interest spread		0.77	%		0.89	%					0.83	%		0.83	%
														��

	As of September 30
	2005		2004
GMDB - Net amount at risk(3)	$	155,640	$	258,516	(39.8	)
GMDB - Reserves		2,070		5,606	(63.1	)
S&P 500 Index		1,229		1,115	10.2

⁽¹⁾Includes general account balances held within variable annuity products.

⁽²⁾Interest spread on average general account values.

⁽³⁾Guaranteed death benefit in excess of contract holder account balance.

Segment operating revenues increased 3.8% and 6.2% compared to the third quarter and first nine months of 2004, respectively, primarily as a result of higher net investment income. Average account balances have grown approximately 9% from the prior year, resulting in higher investment income. The additional income resulting from the larger account balances was reduced in the third quarter of 2005 by lower interest spreads. Interest spreads on fixed annuities declined 12 basis points compared to the third quarter of 2004, primarily due to the rebalancing of the investment portfolio discussed below. The increase in other income is primarily due to an increase in asset-based fees.

During the first quarter of 2005, the investment portfolio was rebalanced to improve the duration match between the segment’s assets and liabilities. Approximately $300 million in securities were sold, causing the large increase in realized investment gains for the nine months ended September 30, 2005. These gains were partially offset by an increase of $22.4 million in DAC amortization associated with those gains. The resulting funds from this transaction were reinvested in assets with lower rates than the investments that were sold, causing a decline in the investment income yield for the segment’s portfolio. The segment continually monitors and adjusts credited rates as appropriate in an effort to maintain the interest spread. The year-to-date interest spread is unchanged from the prior year.

Total benefits and expenses increased 2.4% and 3.4% for the quarter and year-to-date, compared to the same periods of 2004. Benefits and settlement expenses for the first nine months of 2005 are $4.3 million higher than the same period of the prior year due to higher credited interest on the increasing average account balances. These expenses for the current quarter are lower than the prior year due to favorable reserve adjustments of $1.7 million. The increase in DAC amortization for the quarter is primarily the result of higher gross profits in the variable deferred annuity line. DAC is amortized in proportion to gross profits, so increased gross profits results in more DAC amortization. The year-to-date DAC amortization is lower than the prior year due to favorable unlocking that occurred in the second quarter. See additional discussion of this event below. The increases in operating expenses for the quarter and year-to-date are primarily the result of expenses incurred related to the development of a new product.

As mentioned above, the year-to-date DAC amortization was substantially reduced by a $5.0 million reduction in the second quarter due to favorable unlocking. While the investment income yield obtained on the reinvested assets resulting from the portfolio rebalancing discussed above was lower than the yield obtained prior to the rebalancing, the actual yield on the reinvested assets exceeded previously projected spread income. The higher investment yield resulted in higher future estimated gross profits in the segment’s market value adjusted annuity line, causing the favorable unlocking of DAC.

Sales of fixed annuities declined 34.4% and 17.6%, while sales of variable annuities increased 0.6% and 21.4% from the third quarter and first nine months of 2004, respectively. Fixed annuity sales are down due to lower interest rates. While variable annuity sales for the current quarter are relatively flat, year-to-date sales have benefited from the improvement in the equity markets. Total year-to-date sales are slightly higher than the prior year. In addition to improving variable annuity sales, the improved equity markets also reduced the net amount at risk with respect to guaranteed minimum death benefits by 39.8%.

Stable Value Products

The Stable Value Products segment sells guaranteed funding agreements (“GFAs”) to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. Segment results were as follows:

	Three Months Ended September 30							Nine Months Ended September 30
	2005		2004		Change			2005		2004		Change
REVENUES
Net investment income	$	79,118	$	66,472		19.0	%	$	229,074	$	197,171		16.2	%
BENEFITS AND EXPENSES
Benefits and settlement expenses		62,747		50,301		24.7			180,000		150,790		19.4
Amortization of deferred policy acquisition costs		1,240		894		38.7			3,445		2,458		40.2
Other operating expenses		1,388		1,964		(29.3	)		4,003		4,985		(19.7	)
Total benefits and expenses		65,375		53,159		23.0			187,448		158,233		18.5
OPERATING INCOME		13,743		13,313		3.2			41,626		38,938		6.9
Realized investment gains		1,300		6,992					4,004		12,893
INCOME BEFORE INCOME TAX	$	15,043	$	20,305		(25.9	)	$	45,630	$	51,831		(12.0	)

The following table summarizes key data for the Stable Value Products segment:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Sales
GIC	$	20,500		$	15,000			36.7	%	$	49,550		$	54,000			(8.2	)%
GFA - Direct Institutional		0			0			0.0			0			960			(100.0	)
GFA - Registered Notes - Institutional		300,000			625,000			(52.0	)		1,000,000			925,000			8.1
GFA - Registered Notes - Retail		20,790			135,520			(84.7	)		149,430			425,270			(64.9	)
	$	341,290		$	775,520			(56.0	)	$	1,198,980		$	1,405,230			(14.7	)
Average Account Values	$	5,973,325		$	5,112,019			16.8		$	5,834,429		$	5,009,546			16.5
Operating Spread
Net investment income yield		5.41	%		5.34	%					5.37	%		5.39	%
Interest credited		4.29			4.04						4.22			4.12
Operating expenses		0.18			0.23						0.17			0.20
Operating spread		0.94	%		1.07	%					0.98	%		1.07	%

Operating income increased 3.2% and 6.9% from the third quarter and first nine months of the prior year, respectively. These increases are due to growth in average account balances of approximately 17%, partially offset by spread compression of 13 basis points for the quarter and 9 basis points year-to-date. The growth in average account balances was primarily driven by sales of the Company’s registered funding agreement-backed notes program as discussed below. The primary driver of the spread compression has been increasing LIBOR rates, resulting in higher interest credited rates. Operating spreads are expected to continue to decline during the remainder of 2005.

Total sales were 56.0% and 14.7% lower than the third quarter and first nine months of 2004, respectively. Institutional sales continue to be strong, increasing 8.1% year-to-date from the prior year. Retail note sales continue to decline from prior year results due to general market conditions including interest rate volatility. The Company currently anticipates total annual sales for 2005 of approximately $1.4 billion.

Asset Protection

The Asset Protection segment primarily markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and watercraft. In addition, the segment markets an inventory protection product and a guaranteed asset protection (GAP) product. Segment results were as follows:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	78,057		$	112,157			(30.4	)%	$	287,328		$	324,673			(11.5	)%
Reinsurance ceded		(29,165	)		(61,203	)		(52.3	)		(139,860	)		(167,586	)		(16.5	)
Net premiums and policy fees		48,892			50,954			(4.0	)		147,468			157,087			(6.1	)
Net investment income		7,772			7,892			(1.5	)		23,485			22,943			2.4
Other income		13,430			10,003			34.3			35,245			29,923			17.8
Total operating revenues		70,094			68,849			1.8			206,198			209,953			(1.8	)
BENEFITS AND EXPENSES
Benefits and settlement expenses		27,560			29,074			(5.2	)		83,940			94,636			(11.3	)
Amortization of deferred policy acquisition costs		18,054			20,043			(9.9	)		53,269			57,520			(7.4	)
Other operating expenses		18,941			14,659			29.2			50,371			44,270			13.8
Total benefits and expenses		64,555			63,776			1.2			187,580			196,426			(4.5	)
OPERATING INCOME		5,539			5,073			9.2			18,618			13,527			37.6
INCOME BEFORE INCOME TAX	$	5,539		$	5,073			9.2		$	18,618		$	13,527			37.6

The following table summarizes key data for the Asset Protection segment:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Sales
Credit insurance	$	56,749		$	59,543			(4.7	)%	$	158,276		$	169,824			(6.8	)%
Service contracts		65,301			56,627			15.3			174,876			155,763			12.3
Other products		14,812			8,883			66.7			37,454			25,975			44.2
	$	136,862		$	125,053			9.4		$	370,606		$	351,562			5.4
Loss Ratios (1)
Credit insurance		37.2	%		35.7	%					35.3	%		37.9	%
Service contracts		77.6			78.3						74.3			80.8
Other products		67.5			66.4						68.1			73.8

^{(1) Incurred claims as a percentage of earned premiums.}

Operating income increased 9.2% and 37.6% from the third quarter and first nine months of 2004, respectively. Earnings from core product lines are up $0.7 million and $5.5 million for the quarter and year-to-date, respectively, while results from lines the segment is no longer marketing are relatively unchanged both for the quarter and year-to-date.

Within the segment’s core product lines, service contract earnings were unchanged for the quarter but improved $3.9 million year-to-date, while credit insurance earnings declined $0.5 million for the quarter and increased $1.4 million year-to-date. Earnings from other products were $1.2 million and $0.2 million higher for the quarter and year-to-date, respectively, compared to the prior year. The overall improvement in earnings from core operations was partially offset by the lack of income from charter sales in 2005, compared to charter sales of $1.2 million for the first nine months of 2004.

The decline in net premiums was primarily related to decreases of $3.5 million and $12.8 million for the quarter and year-to-date, respectively, in the credit insurance lines due to the runoff of business produced through a third party administrator relationship and higher levels of reinsurance year-to-date. Additionally, as expected, net premiums in the lines the segment is no longer marketing continue to decrease, resulting in net premiums for these lines that were $2.5 million and $7.0 million lower for the third quarter and year-to-date, respectively. Partially offsetting these declines were increases in net premiums in the vehicle service contract and other lines of business totaling $2.4 million for the quarter and $8.9 million for the first nine months, reflecting the continued steady growth of these core lines.

Other income increased from the prior year 34.3% and 17.8% for the quarter and year-to-date, respectively, due to increases in administrative fees on service contracts primarily resulting from the increased volume of contracts sold in this product line.

Benefits and settlement expenses decreased 5.2% and 11.3% from the third quarter and first nine months of 2004, respectively, primarily due to the overall improvement in loss ratios, most notably in the service contract line. Loss ratios in both the service contract and credit insurance lines are favorable year-to-date compared to the prior year as a result of segment initiatives to increase pricing and tighten the underwriting and claims processes. The increase in loss ratio for other products during the third quarter of 2005 is the result of $1.3 million of claims incurred with the inventory protection product related to recent hurricane damages. Amortization of DAC for the third quarter and first nine months of 2005 was lower than the comparable period in 2004 due to the decline in the segment’s credit business. Other operating expenses have increased in 2005 compared to the prior periods primarily due to higher commissions on service contracts due to increased volume.

Total segment sales increased 9.4% and 5.4% for the third quarter and the first nine months, respectively, compared to the same periods of 2004. Sales of credit insurance through financial institutions leveled off during the current quarter resulting in year-to-date sales that are 1.4% lower than the prior year-to-date sales. The bulk of these sales are derived from a third party administrator relationship, which is in runoff. We therefore expect these sales to continue to decline over the next year. Additionally, credit insurance sold through automobile dealers has declined from the prior year, resulting in an overall decline in credit insurance sales of 4.7% for the quarter and 6.8% for the first nine months. Service contract sales continued to improve in the third quarter, exceeding the prior year amounts by 15.3% for the current quarter and 12.3% year-to-date. The year-to-date improvement in service contract sales is comprised of increases of $16.8 million and $2.3 million, respectively, in the vehicle and marine lines.

Corporate and Other

The Company has an additional segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital). This segment also includes earnings from several small non-strategic lines of business (primarily cancer insurance, residual value insurance, surety insurance, and group annuities).

The following table summarizes results for this segment:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004		Change
Operating income (1)	$	10,439		$	7,961		$	2,478		$	27,796		$	16,888	$	10,908
Realized gains and losses - investments		(4,588	)		(169	)		(4,419	)		2,577			4,746		(2,169	)
Realized gains and losses - derivatives		11,375			(6,363	)		17,738			(30,616	)		582		(31,198	)
Income before income tax	$	17,226		$	1,429		$	15,797		$	(243	)	$	22,216	$	(22,459	)

⁽¹⁾Includes settlements on interest rate swaps of $679 and $1,445 for the three months ended September 30, 2005 and 2004, respectively, and $2,326 and $5,126 for the nine months ended September 30, 2005 and 2004, respectively.Also includes participating income from real estate ventures of $4,412, net of minority interest, for the current year-to-date period.

Operating income increased $2.5 million and $10.9 million from the third quarter and first nine months of 2004, respectively, primarily due to increased investment income and lower operating expenses. Net investment income increased $15.3 million and $22.3 million for the quarter and year-to-date, respectively, while income from interest rate swaps decreased $2.8 million and $4.8 million for these same periods. The increased net investment income is primarily the result of higher amounts of unallocated capital and increased participating income and prepayment fees from mortgage and real estate, partially offset by lower income on trading securities.

Results for the runoff insurance lines remain comparable to the prior year, with operating losses of $12.9 million for the first nine months of 2005, compared to $12.3 million for the same period of 2004. Included in the current period loss is a $5.0 million reserve strengthening taken in the residual value line of business as a result of negative trends in used vehicle prices.

Realized Gains and Losses

The following table sets forth realized investment gains and losses for the periods shown:

	Three Months Ended September 30									Nine Months Ended September 30
	2005			2004			Change			2005			2004			Change
Fixed maturity gains	$	2,593		$	20,713		$	(18,120	)	$	45,907		$	46,565		$	(658	)
Fixed maturity losses		(25	)		(861	)		836			(6,880	)		(6,237	)		(643	)
Equity gains		27			1,302			(1,275	)		580			2,692			(2,112	)
Equity losses		(16	)		0			(16	)		(851	)		(22	)		(829	)
Impairments on fixed maturity securities		(4,194	)		(12,052	)		7,858			(4,490	)		(14,775	)		10,285
Impairments on equity securities		(29	)		0			(29	)		(53	)		(1,125	)		1,072
Other		(1,990	)		545			(2,535	)		1,138			(747	)		1,885
Total realized gains (losses) - investments	$	(3,634	)	$	9,647		$	(13,281	)	$	35,351		$	26,351		$	9,000
Foreign currency swaps	$	(14,522	)	$	1,231		$	(15,753	)	$	(27,982	)	$	(10,286	)	$	(17,696	)
Foreign currency adjustments on stable value contracts		14,761			(1,013	)		15,774			28,292			10,911			17,381
Derivatives related to mortgage loan commitments		17,200			(5,564	)		22,764			(10,732	)		(256	)		(10,476	)
Derivatives related to various investments		(4,806	)		1,128			(5,934	)		(17,469	)		6,445			(23,914	)
Total realized gains (losses) - derivatives	$	12,633		$	(4,218	)	$	16,851		$	(27,891	)	$	6,814		$	(34,705	)

Realized gains and losses on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized investment gains for the current quarter, excluding impairments, reflects the normal operation of the Company’s asset/liability program within the context of the changing interest rate environment. The reduction of investment impairments for the third quarter and first nine months of 2005 compared to the same periods of 2004 reflects a significant reduction in default rates. Additional details on the Company’s investment performance and evaluation is provided in the “Liquidity” and “Capital Resources” sections included herein.

Realized investment gains (losses) related to derivatives represent changes in the fair value of derivative financial instruments and gains (losses) on derivative contracts closed during the period. The Company has entered into foreign currency swaps to mitigate the risk of changes in the value of principal and interest payments to be made on certain of its foreign currency denominated stable value contracts. The net change in the realized gains (losses) resulting from these securities in the third quarter and first nine months of 2005 was an immaterial gain and $(0.3) million, respectively. These changes were the result of differences in the related foreign currency spot and forward rates used to value the stable value contracts and foreign currency swaps. The Company has taken short positions in U.S. Treasury futures to mitigate interest rate risk related to the Company’s mortgage loan commitments. The gains from these securities in the third quarter were the result of increasing interest rates in the current quarter and the net losses from these securities during the first nine months of 2005 were due to declining interest rates in the second quarter of 2005.

The Company also uses various swaps and options to mitigate risk related to certain other investments held by the Company. For the third quarter and first nine months of 2005, a portion of the change, a $6.0 million decrease and $11.7 million decrease, respectively, in realized gains (losses) resulted from higher interest rates in 2005, which impacted the fair value of certain interest rate swaps and options. An increase of $0.3 million and a decrease of $4.4 million for the third quarter and first nine months of 2005, respectively, related to gains (losses) from embedded derivatives within certain bonds that matured during the respective periods. For the first nine months of 2005, realized gains (losses) increased by $0.7 million due to the impact of embedded derivatives within certain asset swaps that were called in the first quarter of 2005. For the third quarter and the first nine months of 2005, a $0.1 million decrease and a $1.0 million decrease, respectively, in realized gains (losses) was due to embedded derivatives within annuity contracts and reinsurance agreements.

Additionally, in the first quarter of 2005, the Company recorded a $7.1 million realized investment loss (derivative financial instruments) related to accrued investment income, which arose in periods prior to 2003. The impact had no effect on previously reported segment operating income and no material effect on previously reported net income.

CONSOLIDATED INVESTMENTS

Portfolio Description

The Company's investment portfolio consists primarily of fixed maturity securities (bonds and redeemable preferred stocks) and commercial mortgage loans. The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as “available for sale.”

The Company's investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At September 30, 2005, the Company's fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $15.4 billion, which is 3.0% above amortized cost of $15.0 billion. The Company had $3.1 billion in mortgage loans at September 30, 2005. While the Company's mortgage loans do not have quoted market values, at September 30, 2005, the Company estimates the market value of its mortgage loans to be $3.2 billion (using discounted cash flows from the next call date), which is 4.7% above amortized cost. Most of the Company's mortgage loans have significant prepayment fees. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

The following table shows the reported values of the Company's invested assets.

	September 30, 2005				December 31, 2004
Publicly-issued bonds	$	13,504,939	67.5	%	$	12,094,118	64.0	%
Privately-issued bonds		1,888,734	9.5			1,889,463	10.0
Redeemable preferred stock		2,631	0.0			3,593	0.0
Fixed maturities		15,396,304	77.0			13,987,174	74.0
Equity securities		86,163	0.4			29,050	0.2
Mortgage loans		3,101,823	15.5			3,005,418	15.9
Investment real estate		68,556	0.4			81,397	0.4
Policy loans		463,514	2.3			482,780	2.6
Other long-term investments		283,539	1.4			256,635	1.4
Short-term investments		595,000	3.0			1,046,043	5.5
Total investments	$	19,994,899	100.0	%	$	18,888,497	100.0	%

Market values for private, non-traded securities are determined as follows: 1) the Company obtains estimates from independent pricing services or 2) the Company estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. The market value of private, non-traded securities was $1.9 billion at September 30, 2005, representing 9.5% of the Company's total invested assets.

The Company participates in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned to third parties for short periods of time. The Company requires collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored, on a daily basis, with additional collateral obtained as necessary. At September 30, 2005, securities with a market value of $415.9 million were loaned under these agreements. As collateral for the loaned securities, the Company receives short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “other liabilities” to account for the Company’s obligation to return the collateral.

Risk Management and Impairment Review

The Company monitors the overall credit quality of its portfolio within general guidelines. The following table shows the Company's fixed maturities by credit rating at September 30, 2005.

S&P or Equivalent Designation	Market Value		Percent of Market Value
AAA	$	6,277,922		40.8	%
AA		663,952		4.3
A		2,602,204		16.9
BBB		4,734,474		30.8
Investment grade		14,278,552		92.8
BB		723,568		4.7
B		318,877		2.1
CCC or lower		63,057		0.4
In or near default		9,619		0.0
Below investment grade		1,115,121		7.2
Redeemable preferred stock		2,631		0.0
Total	$	15,396,304		100.0	%

Limiting bond exposure to any creditor group is another way the Company manages credit risk. The following table summarizes the Company's ten largest fixed maturity exposures to an individual creditor group as of September 30, 2005.

Creditor	Market Value
Dominion Resources	$	87.6
American Electric Power		78.7
Kinder Morgan		78.6
FPL Group		76.2
Union Pacific		75.4
Wachovia		75.2
Entergy		72.1
Progress Energy		71.6
Exelon		70.7
Bank of America		69.1

The Company's management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Although it is possible for the impairment of one investment to affect other investments, the Company engages in ongoing risk management to safeguard against and limit any further risk to its investment portfolio. Special attention is given to correlated risks within specific industries, related parties and business markets.

The Company generally considers a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) the intent and ability of the Company to hold the investment until recovery, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security by security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position and continued viability of the issuer are significant measures considered.

The Company generally considers a number of factors relating to the issuer in determining the financial strength, liquidity, and recoverability of an issuer. These include but are not limited to: available collateral, assets that might be available to repay debt, operating cash flows, financial ratios, access to capital markets, quality of management, market position, exposure to litigation or product warranties, and the effect of general economic conditions on the issuer. Once management has determined that a particular investment has suffered an other-than-temporary impairment, the asset is written down to its estimated fair value.

There are certain risks and uncertainties associated with determining whether declines in market values are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud and legislative actions. The Company continuously monitors these factors as they relate to the investment portfolio in determining the status of each investment. Provided below are additional facts concerning the potential effect upon the Company's earnings should circumstances lead management to conclude that some of the current declines in market value are other-than-temporary.

Unrealized Gains and Losses

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after September 30, 2005, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. As indicated above, the Company’s management considers a number of factors in determining if an unrealized loss is other-than-temporary, including its ability and intent to hold the security until recovery. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain (loss) position of the portfolio. At September 30, 2005, the Company had an overall pretax net unrealized gain of $452.5 million.

For traded and private fixed maturity and equity securities held by the Company that are in an unrealized loss position at September 30, 2005, the estimated market value, amortized cost, unrealized loss and total time period that the security has been in an unrealized loss position are presented in the table below.

	Estimated Market Value		% Market Value			Amortized Cost		% Amortized Cost			Unrealized Loss			% Unrealized Loss
	($ in thousands)
<= 90 days	$	4,438,626		78.1	%	$	4,487,178		77.3	%	$	(48,552	)		41.6	%
>90 days but <= 180 days		358,760		6.3			365,546		6.3			(6,786	)		5.8
>180 days but <= 270 days		268,233		4.7			280,296		4.8			(12,063	)		10.3
>270 days but <= 1 year		275,768		4.8			284,336		4.9			(8,568	)		7.3
>1 year but <= 2 years		199,965		3.5			219,287		3.8			(19,322	)		16.5
>2 years but <= 3 years		116,187		2.1			122,586		2.2			(6,399	)		5.6
>3 years but <= 4 years		507		0.0			609		0.0			(102	)		0.1
>4 years but <= 5 years		173		0.0			197		0.0			(24	)		0.0
>5 years		28,080		0.5			43,109		0.7			(15,029	)		12.8
Total	$	5,686,299		100.0	%	$	5,803,144		100.0	%	$	(116,845	)		100.0	%

At September 30, 2005, securities with a market value of $26.1 million and $17.5 million of unrealized losses were issued in Company-sponsored commercial mortgage loan securitizations, including $14.5 million of unrealized losses greater than five years. The Company does not consider these unrealized positions to be other-than-temporary because the underlying mortgage loans continue to perform consistently with the Company’s original expectations.

The Company has no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held by the Company at September 30, 2005, is presented in the following table.

Estimated Market Value	% Market Value	Amortized Cost	% Amortized Cost	Unrealized Loss	% Unrealized Loss
($ in thousands)

Agency Mortgages	$	1,392,327	24.5	%	$	1,407,209	24.2	%	$	(14,882	)	12.7	%
Banking		289,550	5.1			293,189	5.1			(3,639	)	3.1
Basic Industrial		147,840	2.6			153,662	2.6			(5,822	)	5.0
Brokerage		117,878	2.1			119,672	2.1			(1,794	)	1.5
Communications		177,899	3.1			183,284	3.2			(5,385	)	4.7
Consumer Cyclical		151,567	2.7			159,252	2.7			(7,685	)	6.6
Consumer Noncyclical		49,903	0.9			51,564	0.9			(1,661	)	1.4
Electric		478,077	8.4			495,420	8.5			(17,343	)	14.9
Energy		124,019	2.2			125,718	2.2			(1,699	)	1.5
Finance Companies		613,504	10.8			625,789	10.8			(12,285	)	10.5
Insurance		103,418	1.8			106,151	1.9			(2,733	)	2.4
Municipal Agencies		2,642	0.0			2,672	0.0			(30	)	0.0
Natural Gas		236,906	4.1			242,205	4.2			(5,299	)	4.5
Non-Agency Mortgages		1,432,352	25.2			1,457,369	25.1			(25,017	)	21.4
Other Finance		169,253	3.0			175,264	3.0			(6,011	)	5.1
Other Industrial		47,898	0.8			48,731	0.8			(833	)	0.7
Other Utility		40	0.0			44	0.0			(4	)	0.0
Technology		17,895	0.3			19,390	0.3			(1,495	)	1.3
Transportation		83,067	1.5			85,306	1.5			(2,239	)	1.9
U.S. Government		46,109	0.8			47,076	0.8			(967	)	0.8
U.S. Govt Agencies		4,155	0.1			4,177	0.1			(22	)	0.0
Total	$	5,686,299	100.0	%	$	5,803,144	100.0	%	$	(116,845	)	100.0	%

The range of maturity dates for securities in an unrealized loss position at September 30, 2005 varies, with 8.4% maturing in less than 5 years, 19.3% maturing between 5 and 10 years, and 72.3% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position at September 30, 2005.

S&P or Equivalent Designation	Estimated Market Value	% Market Value	Amortized Cost	% Amortized Cost	Unrealized Loss	% Unrealized Loss
	($ in thousands)

AAA/AA/A	$	4,050,499	71.3	%	$	4,096,964	70.6	%	$	(46,465	)	39.8	%
BBB		1,326,429	23.3			1,360,235	23.5			(33,806	)	28.9
Investment grade		5,376,928	94.6			5,457,199	94.1			(80,271	)	68.7
BB		193,399	3.4			205,461	3.5			(12,062	)	10.3
B		59,605	1.0			69,528	1.2			(9,923	)	8.5
CCC or lower		56,367	1.0			70,956	1.2			(14,589	)	12.5
Below investment grade		309,371	5.4			345,945	5.9			(36,574	)	31.3
Total	$	5,686,299	100.0	%	$	5,803,144	100.0	%	$	(116,845	)	100.0	%

At September 30, 2005, securities in an unrealized loss position that were rated as below investment grade represented 5.4% of the total market value and 31.3% of the total unrealized loss. Unrealized losses related to below investment grade securities that had been in an unrealized loss position for more than twelve months were $24.5 million. Securities in an unrealized loss position rated less than investment grade were 1.5% of invested assets. The Company generally purchases its investments with the intent to hold to maturity. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities.

The following table shows the estimated market value, amortized cost, unrealized loss and total time period that the security has been in an unrealized loss position for all below investment grade securities.

Estimated Market Value	% Market Value	Amortized Cost	% Amortized Cost	Unrealized Loss	% Unrealized Loss
	($ in thousands)

<= 90 days	$	121,794	39.4	%	$	125,225	36.2	%	$	(3,431	)	9.4	%
>90 days but <= 180 days		21,143	6.8			21,676	6.3			(533	)	1.4
>180 days but <= 270 days		74,865	24.2			82,450	23.8			(7,585	)	20.7
>270 days but <= 1 year		1,807	0.6			2,355	0.7			(548	)	1.5
>1 year but <= 2 years		64,351	20.8			74,487	21.5			(10,136	)	27.7
>2 years but <= 3 years		514	0.2			646	0.2			(132	)	0.4
>3 years but <= 4 years		140	0.0			162	0.1			(22	)	0.1
>4 years but <= 5 years		47	0.0			54	0.0			(7	)	0.0
>5 years		24,710	8.0			38,890	11.2			(14,180	)	38.8
Total	$	309,371	100.0	%	$	345,945	100.0	%	$	(36,574	)	100.0	%

At September 30, 2005, below investment grade securities with a market value of $22.9 million and $13.7 million of unrealized losses were issued in Company sponsored commercial mortgage loan securitizations, including $13.7 million of unrealized losses greater than five years. The Company does not consider these unrealized positions to be other-than-temporary because the underlying mortgage loans continue to perform consistently with the Company’s original expectations.

Realized Losses

Realized losses are comprised of both write-downs for other-than-temporary impairments and actual sales of investments. For the third quarter and first nine months of 2005, the Company recorded pretax other-than-temporary impairments in its investments of $4.2 million and $4.5 million, respectively, compared to $12.1 million and $15.9 million for the comparable periods of 2004.

As previously discussed, the Company’s management considers several factors when determining other-than-temporary impairments. Although the Company generally intends to hold securities until maturity, the Company may change its positions as a result of a change in circumstances. Any such decision is consistent with the Company’s classification of all but a specific portion of its investment portfolio as available for sale. During the nine months ended September 30, 2005, the Company sold securities in an unrealized loss position with a market value of $902.8 million resulting in a realized loss of $7.7 million. The securities were sold as a result of normal portfolio rebalancing activity and tax planning. For such securities, the proceeds, realized loss and total time period that the security had been in an unrealized loss position are presented in the table below.

	Proceeds		% Proceeds			Realized Loss			% Realized Loss
	($ in thousands)
<= 90 days	$	799,027		88.5	%	$	(4,163	)		53.8	%
>90 days but <= 180 days		0		0.0			0			0.0
>180 days but <= 270 days		9,019		1.0			(223	)		2.9
>270 days but <= 1 year		14,749		1.6			(224	)		2.9
> 1 year		80,011		8.9			(3,121	)		40.4
Total	$	902,806		100.0	%	$	(7,731	)		100.0	%

Mortgage Loans

The Company records mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that are believed to be at a higher risk of becoming impaired in the near future. At September 30, 2005 and December 31, 2004, the Company's allowance for mortgage loan credit losses was $6.4 million and $3.3 million, respectively.

During the first quarter of 2005, Winn-Dixie Stores Inc. (Winn-Dixie), an anchor tenant in the Company’s mortgage loan portfolio, declared Chapter 11 bankruptcy. At September 30, 2005, the Company had 38 loans amounting to $101.8 million in loan balances in which Winn-Dixie was considered to be the anchor tenant for the underlying property (including 11 loans with balances of $20.4 million included in mortgage loan securitization trusts in which the Company holds retained beneficial interests). At September 30, 2005, the rents from Winn-Dixie represented approximately 47% of the total rents applicable to the properties underlying these loans (including approximately 67% of rents on loans in mortgage loan securitizations). On June 21, 2005, Winn-Dixie announced a reorganization plan that included selling or closing 27 stores that served as the anchor tenant for properties underlying loans in the Company’s mortgage loan portfolio. At September 30, 2005, five of these stores have been sold and Winn-Dixie has rejected the leases on the remaining 22 properties. Within these 22 loans, the Company has identified five potential impairments and the mortgage loan reserve included $4.4 million related to these loans at September 30, 2005. The Company will continue to actively monitor these loans and assess them for potential impairments as circumstances develop in the future.

During the third quarter of 2005, two major hurricanes caused a significant amount of property damage in the states of Louisiana, Mississippi, Alabama and Texas. The Company’s mortgage loan portfolio includes 23 loans totaling $62.0 million in the areas impacted by these hurricanes. Of the underlying properties securing these 23 loans, 16 sustained little or no damage from these events. The Company has reviewed each of the loans on the remaining 7 properties and currently believes that none of these loans are impaired. The Company will continue to actively monitor these loans and assess them for potential impairments as circumstances develop in the future.

For several years the Company has offered a type of commercial mortgage loan under which the Company will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of September 30, 2005, approximately $425.3 million of the Company’s mortgage loans have this participation feature.

At September 30, 2005, delinquent mortgage loans and foreclosed properties were less than 0.1% of invested assets. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities.

LIABILITIES

Many of the Company's products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue.

At September 30, 2005, the Company had policy liabilities and accruals of $11.4 billion. The Company's interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.85%.

MARKET RISK EXPOSURES

The Company’s financial position and earnings are subject to various market risks including changes in interest rates, changes in the yield curve, changes in spreads between risk-adjusted and risk-free interest rates, changes in foreign currency rates, changes in used vehicle prices, and equity price risks. The Company analyzes and manages the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. The Company’s asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics.

The primary focus of the Company’s asset/liability program is the management of interest rate risk within the insurance operations. This includes monitoring the duration of both investments and insurance liabilities to maintain an appropriate balance between risk and profitability for each product category, and for the Company as a whole. It is the Company’s policy to generally maintain asset and liability durations within one-half year of one another, although, from time to time, a broader interval may be allowed.

These programs also incorporate the use of derivative financial instruments primarily to reduce its exposure to interest rate risk, inflation risk, and currency exchange risk. Combinations of interest rate swap contracts, futures contracts, and option contracts are used to mitigate or eliminate certain financial and market risks, including those related to changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities, and the Company’s outstanding debt. Swap contracts are also used to alter the effective durations of assets and liabilities and to mitigate the inflation risk caused by the issuance of inflation adjusted notes through the Stable Value Products segment. The Company uses foreign currency swaps to manage its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

Derivative instruments expose the Company to credit and market risk and could result in material changes from quarter-to-quarter. The Company minimizes its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. The Company monitors its use of derivatives in connection with its overall asset/liability management programs and procedures.

In the ordinary course of its commercial mortgage lending operations, the Company will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in the Company's financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. At September 30, 2005, the Company had outstanding mortgage loan commitments of $1,044.2 million at an average rate of 5.93%.

The Company believes its asset/liability management programs and procedures and certain product features provide protection for the Company against the effects of changes in interest rates under various scenarios. Additionally, the Company believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. However, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity and other factors, and the effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company meets its liquidity requirements primarily through positive cash flows from its insurance operations. Primary sources of cash are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, and other operating expenses.

While the Company generally anticipates that cash flows will be sufficient to meet its investment commitments and operating cash needs, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Additionally, the Company may, from time to time, sell short-duration stable value products to complement its cash management practices. The Company has also used securitization transactions involving its commercial mortgage loans to increase liquidity.

The Company’s positive cash flows from operations are used to fund an investment portfolio that provides for future benefit payments. The Company employs a formal asset/liability program to manage the cash flows of its investment portfolio relative to its long-term benefit obligations. See additional discussion of the Company’s asset/liability program in the “Market Risk Exposures” section.

The Company was committed at September 30, 2005 to fund mortgage loans in the amount of $1,044.2 million. The Company held $625.1 million in cash and short-term investments at September 30, 2005.

The states in which the Company and its insurance subsidiaries are domiciled impose certain restrictions on the ability to pay dividends to PLC. These restrictions are generally based in part on the prior year’s statutory income and surplus. Generally, these restrictions pose no short-term liquidity concerns for PLC. The Company plans to retain substantial portions of its earnings and the earnings of its subsidiaries primarily to support future growth.

Capital Resources

On August 26, 2005 Golden Gate Captive Insurance Company (“Golden Gate”), a special purpose financial captive insurance company wholly owned by the Company,issued $100 million of non-recourse funding obligations, which bear a floating rate of interest and mature in 2037. These non-recourse funding obligations were issued under a surplus notes facility established with certain purchasers through which Golden Gate may issue up to an aggregate of $400 million of non-recourse funding obligations through June 2007. The non-recourse funding obligations are direct financial obligations of Golden Gate and are not guaranteed by the Companyor its parent company, PLC. The non-recourse obligations are represented by surplus notes that were issued to fund statutory reserves required by the Valuation of Life Insurance Policies Regulation (Regulation XXX). Under the terms of the notes, the holders of the notes cannot require repayment from the Company or any of the Company’s subsidiaries, other than Golden Gate, the direct issuer of the notes, although the Company has agreed to indemnify Golden Gate for certain costs and obligations (which obligations do not include payment of principal and interest on the notes). In addition, PLC has entered into certain support agreements with Golden Gate obligating PLC to make capital contributions to Golden Gate or provide support related to certain of Golden Gate’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate.

A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners ("NAIC"), as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with other state’s law. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of the Company and its insurance subsidiaries. The Company may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions by PLC.

Contractual Obligations

The table below sets forth future maturities of stable value products, notes payable, non-recourse funding obligations, operating lease obligations, mortgage loan commitments, liabilities related to variable interest entities, and policyholder obligations.

	2005		2006-2007		2008-2009		After 2009
Stable value products(a)	$	203,638	$	2,466,104	$	1,686,342	$	1,544,656
Note payable		9		2,167
Non-recourse funding obligations(b)								100,000
Securities sold under repurchase agreements		142,850
Operating leases(c)		1,415		8,389		3,788		2,982
Mortgage loan commitments		1,044,186
Liabilities related to variable interest entities(d)		216		1,940		35,246		5,641
Policyholder obligations(e)		262,565		1,817,485		1,667,212		9,805,662
(a)Anticipated stable value products cash flows, excluding interest not yet accrued. (b)Non-recourse funding obligations include all principal amounts owed on note agreements, and does not include interest payments due over the term of the notes. (c)Includes all base lease payments required under operating lease agreements. (d)Liabilities related to variable interest entities are not the legal obligations of the Company, but will be repaid with cash flows generated by the variable interest entities. The amounts represent scheduled principal payments. (e)Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to the Company’s historical experience, modified for recent observed trends. These obligations are based on current balance sheet values and do not incorporate an expectation of future market growth, interest crediting, or future deposits. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As separate account obligations are legally insulated from general account obligations, the separate account obligations will be fully funded by cash flows from separate account assets. The Company expects to fully fund the general account obligations from cash flows from general account investments.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2005, the FASB issued an exposure draft of a proposed interpretation, “Accounting for Uncertain Tax Positions - an Interpretation of FASB Statement 109.” The draft contains proposed guidance on the recognition and measurement of uncertain tax positions. It also addresses the accrual of any interest and penalties related to tax uncertainties and the classification of liabilities resulting from tax uncertainties on the balance sheet. The draft includes a proposed effective date of December 15, 2005. The Company is currently evaluating the provisions of this draft interpretation, but does not currently anticipate that its adoption would have a material impact on its financial position or results of operation.

See Note 5 to the Consolidated Condensed Financial Statements for information regarding recently issued accounting standards.

RECENT DEVELOPMENTS

A proposal to amend Actuarial Guideline 38 (promulgated by the NAIC and part of the codification of statutory accounting principles) has been approved by the NAIC, with an effective date of July 1, 2005. Actuarial Guideline 38, also known as AXXX, sets forth the reserve requirements for universal life insurance with secondary guarantees (“ULSG”). The changes to Actuarial Guideline 38 will increase the reserve levels required for many ULSG products, and potentially make those products more expensive and less competitive as compared to other products including term and whole life products. The changes to Actuarial Guideline 38 affect only policies with an issue date of July 1, 2005 and later, and reduce the competitiveness and/or profitability of newly written ULSG products compared to traditional whole life or other high cash value insurance products or other products supported by relatively inexpensive capital (such as reinsurance of redundant reserves). To the extent that the additional reserves are generally considered to be economically redundant, capital market or other solutions may emerge to reduce the impact of the amendment. The ability of the Company to access such solutions may depend on factors such as the ratings of the Company, the size of the blocks of business affected, the mortality experience of the Company and other factors. The Company cannot predict when or if these solutions may become available to the Company or its competitors

The financial services industry has recently become the focus of increased scrutiny by regulatory and law enforcement authorities relating to allegations of improper special payments, price-fixing, bid-rigging and other alleged misconduct, including payments made by insurers and other financial service providers to brokers and the practices surrounding the placement of insurance business and sales of other financial products as well as practices related to finite reinsurance. Such publicity may generate litigation against financial service providers, even those who do not engage in the business lines or practices currently at issue. It is impossible to predict the outcome of these investigations or proceedings, whether they will expand into other areas not yet contemplated, whether they will result in changes in insurance regulation, whether activities currently thought to be lawful will be characterized as unlawful, or the impact, if any, of this increased regulatory and law enforcement scrutiny of the financial services industry on the Company. As these inquiries appear to encompass a large segment of our industry, it would not be unusual for large numbers of companies in the financial services industry to receive subpoenas, requests for information from regulatory authorities or other inquiries relating to these and similar matters. From time to time, the Company receives subpoenas, requests or other inquires and responds to them in the ordinary course of business.

In the first quarter of 2005, the Company received a subpoena from the Attorney General of West Virginia for documents and other information relating to funding agreement-backed securities, special purpose vehicles, and related subjects. The Company understands that other U.S. based life insurers that participate in funding agreement backed note programs have received similar subpoenas. The Company has responded to the subpoena. The Company is not aware of any problems relating to its participation in funding agreement-backed note programs that would have a material adverse effect on its results of operations or financial condition.

The California Department of Insurance has promulgated proposed regulations that would characterize some life insurance agents as brokers and impose certain obligations on those agents that may conflict with the interests of insurance carriers or require the agent to, among other things, advise the client with respect to the best available insurer. The Company cannot predict the outcome of this regulatory proposal or whether any other state will propose or adopt similar actions.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There has been no material change from the disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

Item 4.Controls and Procedures

(a) Disclosure controls and procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective as of September 30, 2005. It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.

(b)   Changes in internal control over financial reporting

No significant changes in our internal control over financial reporting occurred during the quarter ended September 30, 2005 that have materially affected, or is reasonably likely to materially affect, such internal control over financial reporting. Our internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.

PART II

Item 6.Exhibits

Exhibit 12 - Consolidated Earnings Ratios.

Exhibit 15 - Letter re: unaudited interim financial information.

Exhibit 31(a) - Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b) - Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(a) - Certification Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(b) - Certification Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99 - Safe Harbor for Forward-Looking Statements.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PROTECTIVE LIFE INSURANCE COMPANY

Date:November 14, 2005                                                                  /s/ Steven G. Walker                                                  

Steven G. Walker

Senior Vice President, Controller and

Chief Accounting Officer

(Duly authorized officer)